This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. Journals
  3. American Economic Review
  4. December 2005
  5. Herd Behavior in a Laboratory Financial Market

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Herd Behavior in a Laboratory Financial Market

  • Marco Cipriani
  • Antonio Guarino
American Economic Review
vol. 95, no. 5, December 2005
(pp. 1427–1443)
Download Full Text PDF

Abstract

We study herd behavior in a laboratory financial market. Subjects receive private information on the fundamental value of an asset and trade it in sequence with a market maker. The market maker updates the asset price according to the history of trades. Theory predicts that agents should never herd. Our experimental results are in line with this prediction. Nevertheless, we observe a phenomenon not accounted for by the theory. In some cases, subjects decide not to use their private information and choose not to trade. In other cases, they ignore their private information to trade against the market (contrarian behavior).

Citation

Cipriani, Marco, and Antonio Guarino. 2005. "Herd Behavior in a Laboratory Financial Market." American Economic Review, 95 (5): 1427–1443. DOI: 10.1257/000282805775014443

Additional Materials

JEL Classification

  • D82 Asymmetric and Private Information; Mechanism Design
  • G10 General Financial Markets: General (includes Measurement and Data)